The Board of Trustees v. Noorda

The Board of Trustees, in their capacities as Trustees of the National Roofing Industry Pension Fund, et al., Plaintiffv.Lamar and Elise H. Noorda and Foursquare Roofs & Walls, Inc. Defendants

ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT [ECF NOS.
48, 63]

The
trustees of the National Roofing Industry Pension Fund and
three other employee-benefit funds (the Trusts)[1] sue Lamar and
Elise Noorda and Foursquare Roofs & Walls, Inc.
(Foursquare) to recover unpaid employer contributions that
are allegedly owed under a collective-bargaining agreement
that non-party Noorda Sheet Metal Company (NSM) entered into
with non-party United Union of Roofers Waterproofers and
Allied Workers Local 162 (Union).[2] The Trusts allege that
Foursquare is the successor and alter ego of NSM and, thus,
is liable in contract for NSM's failure to pay employer
contributions. The Trusts allege that the Noordas, who owned
NSM then and partly own Foursquare now, are the alter egos of
both entities and, thus, are also liable in contract for some
of the unpaid contributions.[3]

The
Noordas and Foursquare now move for summary judgment on all
of the Trusts' claims, arguing that the alter-ego and
successor-liability claims are barred by the doctrines of
issue preclusion and claim preclusion, and the
breach-of-contract claim fails as a result.[4] The Noordas also
argue that the Trusts are enjoined from suing them by virtue
of the discharge that they received in their personal Chapter
7 bankruptcy case. The Trusts move for summary judgment on
their claim that Foursquare is NSM's
successor.[5] I deny the defendants' motion because
their arguments are either wrong or not fully developed, and
I deny the Trusts' motion because triable issues preclude
summary judgment on their successor-employer claim.

NSM
entered into collective-bargaining agreements with the Union
in 2007 and 2010. When the 2010 agreement expired in 2012,
NSM terminated its relationship with the Union, but nine
months later entered into a memorandum of understanding that
made it a party to a new collective-bargaining agreement,
which expired on July 31, 2015.

NSM,
which fabricated and installed sheet-metal products, was
owned and operated by the Noordas for two decades. But when
the company ran into serious financial difficulty, they
shuttered it in December 2013 and put it into bankruptcy the
next month. Elise Noorda incorporated Foursquare a few months
later. The Noordas also filed personal bankruptcy petitions
and received a discharge under Chapter 7 of the Bankruptcy
Code in April 2014.

Before
that discharge was entered, two of the plaintiff trusts in
this case[7] and the Union filed an adversary
proceeding under the Noorda's bankruptcy case, and
alleged three claims challenging the dischargeability of the
Noorda's debts arising from NSM's alleged breach of
the collective-bargaining agreement. The adversary proceeding
was set for trial, but before that occurred, the Ninth
Circuit issued an opinion that eviscerated the adversary
plaintiffs' second claim against the Noordas,
[8]
which was based on the theory that they are ERISA
fiduciaries. So, the adversary plaintiffs moved to dismiss
their adversary proceeding. The bankruptcy court granted the
motion and dismissed their claims with prejudice under FRCP
41 and FRBP 7041.[9]The bankruptcy court then entered a
judgment of dismissal in favor of the Noordas.

Discussion

A.
Summary-judgment standard

Summary
judgment is appropriate when the pleadings and admissible
evidence “show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as
a matter of law.”[10] When considering summary judgment,
the court views all facts and draws all inferences in the
light most favorable to the nonmoving party.[11] If reasonable
minds could differ on material facts, summary judgment is
inappropriate because its purpose is to avoid unnecessary
trials when the facts are undisputed, and the case must then
proceed to the trier of fact.[12]

If the
moving party satisfies Rule 56 of the Federal Rules of Civil
Procedure by demonstrating the absence of any genuine issue
of material fact, the burden shifts to the party resisting
summary judgment to “set forth specific facts showing
that there is a genuine issue for trial.”[13] The nonmoving
party “must do more than simply show that there is some
metaphysical doubt as to the material facts”; it
“must produce specific evidence, through affidavits or
admissible discovery material, to show that” there is a
sufficient evidentiary basis on which a reasonable fact
finder could find in his favor.[14]

B.
Defendants' motion for summary judgment [ECF No.
48]

Foursquare
and the Noordas argue that they are entitled to summary
judgment because the alter-ego and successor-liability claims
are barred by the doctrines of issue and claim preclusion,
and the Trusts need one of those to stick to hold them liable
for NSM's alleged breach of the collective-bargaining
agreement. The Noordas also argue that their debt to the
Trusts was discharged under Chapter 7 of the Bankruptcy Code.

1.
Issue preclusion

Issue
preclusion “bars ‘successive litigation of an
issue of fact or law actually litigated and resolved in a
valid court determination essential to the prior judgment,
' even if the issue recurs in the context of a different
claim.”[15] Defendants argue that whether they are
the alter egos of NSM or if Foursquare is a successor
employer of NSM are issues that were decided in their favor
in the adversary proceeding.

It is
undisputed that U.S. Bankruptcy Judge August Landis entered
an order granting the adversary plaintiffs' motion to
dismiss their adversary proceeding against the Noordas with
prejudice under FRCP 41 and FRBP 7041. Also undisputed is
that Judge Landis then entered a judgment of dismissal in
favor of the Noordas. “The preclusive effect of a
federal-court judgment is determined by federal common
law.”[16] The Ninth Circuit has explained that
“[a] voluntary dismissal of a claim prior to any
adjudication and without any stipulated findings of fact does
not actually litigate any issue[, ]” even if the
dismissal is with prejudice.[17]

Judge
Landis did not adjudicate the merits of successor or
alter-ego liability or make any stipulated findings of fact
when he granted the adversary plaintiffs' dismissal
motion and dismissed that case with prejudice.[18] Indeed, when
Judge Landis provided the procedural background and alleged
facts during his oral ruling on the motion, he was very clear
to state on the record that “those are allegations, not
findings, only to the extent that they're findings of
fact. It's just to state that's what the complaint
alleges.”[19] The defendants point to no part of the
adversary proceeding's record-and I have not found
any-where any issue of fact was adjudicated or stipulated-to
by the parties. So, issue preclusion cannot attach to the
voluntary with-prejudice dismissal of the adversary claims.

2.
Claim preclusion

“Under
the doctrine of claim preclusion, a final judgment forecloses
‘successive litigation of the very same claim, whether
or not relitigation of the claim raises the same issues as
the earlier suit.'”[20] “Claim preclusion
applies when there is (1) an identity of claims; (2) a final
judgment on the merits; and (3) identity or privity between
the parties.”[21] The Ninth Circuit explained in
Garity v. APWU National Labor Organization that the
first factor “is outcome determinative” and
depends upon whether the two suits “‘are related
to the same set of facts and whether they could
conveniently be tried
together.'”[22]

But the
defendants don't mention-let alone analyze-whether the
Trusts' claims in this case could conveniently be tried
with the claims in the adversary proceeding.[23] The prior
suit was an adversary proceeding against the Noordas alleging
three claims that their debt under the collective bargaining
agreement was not dischargeable under 11 U.S.C. §§
523(a)(2), (4), and (6).[24] In this case, the Trusts seek to hold
the Noordas liable for NSM's alleged breach of the
collective-bargaining agreement under the theory that they
are NSM's alter egos. And the Trusts seek to hold
Foursquare liable for NSM's alleged breach of the
collective-bargaining agreement under the theory that it is
NSM's alter ego and its successor employer. I decline to
analyze for the defendants in the first instance whether the
claims in this case could have conveniently-or even
possibly-been tried by the bankruptcy court in an adversary
proceeding challenging the dischargeability of the
Noordas' alleged debt to the Trusts. So, I find that the
defendants have not demonstrated that claim preclusion
attaches to the with-prejudice dismissal of the
dischargeability claims.

3.
Discharge injunction

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Defendants&#39;
final argument is that the Trusts&#39; alter-ego claim
against them is barred by the Chapter 7 discharge injunction.
There is no dispute that the Noordas received a discharge
under Chapter 7 of the Bankruptcy Code. Also undisputed is
that their &ldquo;order for relief&rdquo; was entered on
January 23, 2014.[25] Defendants explain that a Chapter 7
discharge &ldquo;&lsquo;discharges the debtor from all debts
that arose before the date of the order for relief . . .
.&#39;&rdquo;[26] They also explain that
“debt” means a “‘liability on a
claim'” and “claim” means a
“‘right to payment, whether or ...

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